Some private ILS lines could see rate increases of 30% or more: Twelve Capital

by Artemis on November 29, 2017

The insurance-linked securities (ILS) market responded well to recent intense pressure from third-quarter catastrophe events, and there’s an opportunity for ILS players to take advantage of premium increases of up to 30% or higher, according to insurance and reinsurance linked investment specialist manager, Twelve Capital.

In a recent research note on the active 2017 hurricane season, Twelve Capital has said that the private ILS market is likely to experience premium increases of between 10% to 30%, dependent on the line of business, with some niche areas of the private ILS sector seeing rates increase even higher.

For the catastrophe bond market, which according to Artemis data currently has an outstanding market size of almost $30.1 billion after nearly $11.5 billion of issuance since the start of the year, is likely to see rates increase by between 5% to 15%, said Twelve Capital.

After the devastating impacts of hurricanes Harvey, Irma, and Maria and the two powerful Mexico earthquakes that occurred in the third-quarter, 2017 has been described as the first real test for the ILS space, both in terms of its ability and willingness to pay claims.

“During a time of intense pressure, the ILS market has proven its structural robustness and investors have remained committed to the asset class, with a number increasing their allocations to the space over the past few weeks,” said Twelve Capital.

Adding; “Despite the number of events impacting the reinsurance and ILS markets during 2017, the outlook for the asset class on both a short-and medium-term view is, in our opinion, a particularly positive one.”

The specialist insurance and reinsurance linked investment manager holds a stronger outlook for the ILS space than it has for a number of years, citing an attractive point of entry for new market players as well as an opportunity for those already in the asset class to increase their market exposure.

It remains unclear exactly how much of an impact recent catastrophe events will have on the ILS space, and exactly where the losses will be felt the most, although this should become clearer over time as the losses develop and the claims process continues.

Twelve Capital notes that a number of catastrophe bonds and private ILS transactions that are likely to suffer losses will likely be unable to repay their principal at the scheduled maturity date, with cat bonds being extended and private ILS contracts seeing collateral being held, locked, or trapped until the ultimate loss is understood.

“Twelve Capital believes that several opportunities in the ILS market have arisen over the past few months, not only in terms of premium increases but also in terms of new portfolio management methodologies as well,” said Twelve Capital.

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